(As I write this, Memphis is on a tornado watch.)
The first earthquake I experienced was a 7.3 on the Richter, and later learned that the epicenter was 250-300 miles away from me. The distance did not stop an apartment building’s wall in my neighborhood from collapsing. The only damage to my apartment was a nail that popped out from the kitchen ceiling.
I experienced the 1989 Loma Prieta quake about half-way between the epicenter and San Francisco. The limit of my loss was a cup that fell out of my refrigerator the first time its door was opened after the quake.
In both these incidents, majority of the deaths occurred in areas many miles away from the epicenter. Some of that had to do with population density, but also the age and type of infrastructure (code,) and type of soil.
I saw the 1991 Oakland Firestorm from across the Bay.
Besides a couple of severe winter storms in the 1990s (including El Niño) that caused localized flooding and hill-slides, including under very expensive property, I can’t recall any other large-scale (natural) disasters that I in any way experienced personally. But I studied many - got an undergrad in emergency services management, perhaps impacted by my first quake memory. So:
I live where I live, with the full awareness that another large earthquake may happen - without any warning on the local weather forecast days ahead. I take some comfort in knowing that the soil under my CA home is on the denser side, and the house is bolted down to the foundation. It is also not likely to be impacted by any tsunami. I use the Bay Area bridges and various raised freeway connectors often. And, judging from the population - and property value - growth in the SF Bay Area over the last 30 years, even having easy access to footage from 1989 doesn’t seem to scare (enough?) people away.
As for fire danger: I am aware that if my insurance company decides to leave the area, I may not be able to find another one easily, due to proximity to a canyon with vegetation - despite no history of fires. This lack of competition changed in the last ~10 years, as more expensive fires have been hitting California more often. At latest annual renewal, my premium went up by over 30%.
Incidentally, an insurance broker I was speaking with on Monday told me that he recently bought a house in Napa, and has it insured for $2MM. I did not ask him how much he paid for the house. Well, his $2MM dwelling coverage policy costs him $18,000/yr, and the fire coverage had to be underwritten by the state as the last resort… because Tubbs Fire, Atlas Fire, etc. And there was a 2014 earthquake with injuries and a death… I am not aware that property values in the Napa area have been negatively affected despite these events, but it is not an area I ever considered investing in/evaluated. But if I owned there, I am rather sure I’d be considering getting out now, due to what I consider to be an uncertain situation that is already costing (far) more to deal with than just five years ago.
I used to own rentals along the Hayward Fault, which is “overdue”- not my word - for a big one. They made sense when I bought them, but the thought of that possibility definitely bothered me over the years, especially since they had a soft story. I sold the last one last year. But it was really more of a market timing decision than the earthquake concern, as the property no longer made up a large part of my portfolio to worry about its loss in a disaster. (And, shockingly, it has appreciated considerably since I sold it.)
(For those who may not know: earthquake insurance in California is expensive and comes with very high deductibles. But I do not believe that it is mandatory anywhere in the state/by any conventional residential lender.)
When I was looking to buy in Memphis, I was aware of the New Madrid Fault, tornadoes, and crime rates (and shrinking population) - but considered the probabilities, price/value in what I also (still) see as an underappreciated (if only for its geographic location) market, and size of my overall portfolio exposure, and went for it. I still own there. And this is not the first tornado possibility the area is facing since I bought there. (Here’s to hoping that everyone will be well.)
I am curious about how the Florida insurance situation will play out. My only property there - inland, 2016 construction - had its premium go up by over 20% at latest renewal (almost doubled in 5 years,) and shopping around resulted in much higher rates, as well as fewer available insurers. In fact, another company initially gave me a slightly better quote, only to pull out of the market the following week. I know that my situation is not the worst case.
I've passed up on properties in any elevated flood risk areas without giving them additional thought - regardless of whether flood insurance was (currently) required. But I did once attempt to buy a Midwest property for cash, where having a mortgage would have required flood insurance: in my (not-totally-professional, but still) opinion, it had an extremely low chance of getting flooded, unlike FEMA's belief. When my local agent presented it to me, it was with his absolute knowledge of my fears - it was looking like a great deal, because the flippers had not done their homework before their cash purchase, and local retail buyers kept getting turned off once they learned about the flood insurance requirement. The flippers were willing to take a loss on their high quality work. Unfortunately, the news about the potential great deal traveled fast, and I suddenly faced steep bidding competition from local investors. I could have participated, but when I buy something, I consider the exit strategy, so my cash offer was firm. This was years ago - in today's market, it would sell retail without a problem. So, I can certainly see myself making an exception for a great deal, where my personal assessment may not jibe with FEMA's.
So far, I have deliberately stayed away from coastal areas - can’t allow myself to be “part of the problem,” especially where (taxpayer-funded) NFIP is involved. But I do not have any STRs, so perhaps the probabilities math may work in some locations if I gave it enough thought.
I dislike tall trees in close proximity, but don’t let their presence kill an otherwise good deal. (Maybe I did a few times, but wouldn’t in the current market environment.)
I do prefer warmer climes - but away from direct hurricane hits and highest tornado likelihoods. Strangely, I’ve had more ice dam and burst pipe damage in Memphis than in Ohio. (Not that strange, actually, when you consider construction/rehab quality between the two locations. I can write a small book from experience on what a Memphis property manager/flipper/TK provider considered quality roof replacement.)
I used to look at maps of recent droughts in new investment locations, for the fear of tenants and industry moving to cheaper/restriction-free water bills/use. I no longer do that. The current California drought is not my first, and - historically - that hasn’t stopped population from growing. Unlike Las Vegas, St George, parts of Arizona (not picking on anyone, just off the top of my head,) I know that living close to a huge body of salt water is a potential - yet costly - salvation from a terrible drought. But CA is also planning to invest in more water storage.
So, absolutely, I consider probabilities of natural disasters in my investment decisions. But I don’t know if I build any strategy - except general geographic diversification for a number of reasons - around that consideration. And, just as absolutely, I am mindful that even when no hazards are obvious, some loss may still occur.
